from CAPM -a blog for CPSM wannabes

1-F-5 Supplier Performance Appraisal

July 31, 2015

Unlike the Human Resources annual employee appraisal, you do not appraise all suppliers annually. Here again you take a strategic (see Risk-Value Matrix) view and do appraise strategic suppliers and critical suppliers annually - if not more often. If there are problems with leverage suppliers - you will hear from users quickly anyway, and you can be relatively more relaxed with non-critical suppliers.

In general though, you would like all suppliers to work as well as a great in-house employee.

The Chief Supply Officer/Chief Procurement officer may not be able to tell you the exact number of items they buy, because these may run into thousands or even hundreds of thousands. That is why, many supply management software have a supply evaluation module (e.g. SAP) that can pull up a supplier evaluation right away. The data sources are (a) order placed (b) actual delivery vs. time promised (c) report of goods received inspection report for quality (d) response time for supplier any service requests (e) satisfaction of users for the product or service purchased. Thus, if everyone in organizations involved with a product or service were diligent in inputting data, then the supply software would make supplier performance appraisals painless and easy.

However, if there are thousands of items you cannot expect every internal user to fill in a survey in a timely manner and therefore allow the software to give useful appraisals.

It thus comes back to the skill of the supply management leader to identify suppliers by segments of importance to your organization's success. You then have to ensure that performance appraisals are carried out and remedial action (including firing the supplier, if necessary) is taken in a timely manner.

Firing the supplier is a completely avoidable situation if this task is managed well. Here are the steps for the supplier performance management process:

Decide KPI's: Decide KPI's (Key Performance Indicators) with the user department and clearly communicate those with suppliers. Sometimes you do not need a 100% quality performance. Thus if you need a stationery item like a pencil, there is no catastrophic situations if one batch of pencil leads break more easily in use. However, if a critical valve passes inspection and leaks without reason in a sensitive application, it could be trouble. Maybe, you might want to define performance more broadly beyond "quality inspection on supply" to "quality in use".

Jointly develop targets: "Jointly" is the key word here. You are trying to buy something for an internal process to make something else. Assume that you want to reduce material costs by reducing gauge-without reducing performance. Close "joint" collaboration between the supplier and the user is necessary to induct a lower gauge input and then jointly work with quality folks to ensure that the lower specs , lower gauge input does not affect the quality of the output adversely.

Collaborate to improve: Once again, "jointly" or "collaboratively" is the key here. Generally, suppliers are very keen to improve and the only thing they need is the opportunity to work as a team with your internal folks to try and improve. In some cases, e.g. a technology platform change - the supplier may be helpless and you will need to find a new supplier who works with the new technology platform. However, if you just need a supplier to up their game on the existing technology its a far better idea to work with suppliers that are already familiar with your process,users and organizations and have an ongoing relationship. Also see more on technology platforms in "S Curves of Innovation".